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Governance

The board of directors is the cornerstone of a nonprofit’s success. Here are links to information on selection of board members, drafting bylaws, running board committees, board retreats, and other important board issues.

Principles & Practices Citation:

V. Board of Directors

A. Principle - Board Responsibilities

Each charitable nonprofit must have a board. Except as otherwise provided (by law and the government document), all corporate powers shall be exercised by or under the authority of, and the affairs of the charitable nonprofit managed under the direction of its board. (See Iowa Code section 504.801 for nonprofit corporations, Iowa Code section 633.A4101 et seq. for trusts). The board should be active.

Practices

A board of directors’ primary responsibilities are to determine the organization’s mission and its policies, to set the organization’s overall program for the year and engage in long range planning, establish the fiscal policy, provide adqeuate resources for the activities of the organization; select, evaluate and if necessary, terminate the appointment of the chief executive, and develop and maintain communication links to its constituencies and the community.

The board should avoid involvement in day-to-day operations of the charitable nonprofit, although it is recognized that for smaller nonprofits, with no paid staff, this is not possible.

The board sets organizational policies and monitors compliance with them. In making policies for a charitable nonprofit, a board is setting objectives against which to measure the organization. Setting and monitoring policy protect directors from liability where they act in good faith and with due care.

Frequently Asked Questions about Governance

No. Under Iowa law, a nonprofit corporation is only required to have one or more board members (Iowa Code 504.803), but the IRS, on the Form 1023 Application for Exemptions, wants to see at least three board members. The Iowa Principles and Practices for Charitable Nonprofit Excellence recommends at least five board members (V.B.3).

A contract between an organization and a board member is considered a self-dealing transaction. Such transactions may be permissible but only if certain precautions are taken to minimize conflict of interest. The contract should only be approved by board members who have no personal financial interest in the transaction. If it is determined that the transaction is in the best interest of the organization and if the contract presents the best deal the organization can get with reasonable effort then the disinterested board may approve the contract. Board members may be subject to personal penalties if an organization does not take the proper precautions to ensure that self-dealing transactions do not present conflicts of interest. Organizations should be sure to draft policies to deal with both real and perceived conflicts of interest.

Source:

See The Governing Board for Iowa Nonprofits (2003), by Willard L. Boyd.

Efficient management of subcommittees can prove to be elusive and requires careful balancing. Therefore, it may be best for a new board to start doing the whole job itself and appointing committees only as necessary. Effective use of committees can make the full board’s agenda more manageable, allow more time to be spent on larger issues, and allow directors to concentrate on their particular areas of competence. However, boards should use subcommittees sparingly to avoid problems with fragmentation, dual authority, and redundancy. For details see Board Source

Though slightly oversimplified, the functions of an organization can be divided into ends and means. Ends, or desired outcomes, are generally the responsibility of the board, while means, the method for achieving the ends, fall to the organization’s administration. There is certainly overlap between the two categories, but growth is usually stunted in organizations whose board members spend too much time doing the administration’s work.

It is important to present potential board members with a written summary of expectations and responsibilities in order to avoid confusion or misunderstandings after persons join the board. However there are times when an organization will have to confront a board member who is not actively participating or fulfilling his or her responsibilities. When board members fail to meet their responsibilities it can usually be attributed to one of several factors. The board member might not have been well enough informed or might be confused about what is expected of him or her. The board member might not be comfortable with his or her assignment. It is possible that the member has too many other board assignments or because of too many other commitments in addition to the work he or she is doing for your board. A committee or board chair should talk with the member to determine the reasons for the problem then offer the appropriate solution such as additional training, reassignment, and so on.

Source:

See The Governing Board for Iowa Nonprofits (2003) by Willard L. Boyd. Information about this monograph is available on our Publications page.

The Iowa Principles and Practices for Charitable Nonprofit Excellence explains that "A board of directors’ primary responsibilities are to determine the organization’s mission and its policies; set the organization’s overall program for the year and engage in long-range planning; establish the fiscal policy; provide adequate resources for the activities of the organization; select, evaluate, and, if necessary, terminate the appointment of the chief executive; and develop and maintain communication links to its constituencies and the community." (V.A.1) The board sets policy and monitors policy implementation. “Policy” generally means an articulation of some broad principles to govern particular nonprofit issues. So, for instance, a fundraising policy would usually govern such issues as types of fundraising campaigns (capital, annual corporate sponsorship, etc.,) and how those, generally, would be administered. In addition to the policy, the board is often involved in drafting and adopting “practices” which are the more detailed operational implementation of policies. The board is significantly involved in fundraising activities, and its leadership in pursuing funding goals is critical to the overall success of the nonprofit’s fundraising campaign. Budgeting is also a primary board responsibility. In assessing the budget, the board looks at such things as cash flow, the statement of activities, and the relationship of restricted and non-restricted funds to activities being funded. In analyzing the annual budget there should be a review of income and expenditure variances in the actual budget as compared to the proposed budget. Periodically, the board would also review the effectiveness of internal controls, a system designed to minimize errors in the bookkeeping and to prevent fraud. The annual budget review is usually a review of the operating budget. The board should also review the capital budget for larger equipment and facility needs.